Which of the following is not an example of an agency arrangement where the selling entity would recognise revenue on a net basis? Group of answer choicesA licensed hotel selling keno tickets to customers for $5.00 and remitting $4.50 per ticket to the state gaming authority.A travel agent selling a cruise ticket to a customer, charging the customer $2 000 and remitting $1 800 to the cruise liner company.A distributor receiving stock from its supplier on a sale-or-return basis. The sales price per unit is $100 and the cost per unit is $60.A retailer selling goods to a customer for $88 and remitting $8 GST to the government.
Question
Which of the following is not an example of an agency arrangement where the selling entity would recognise revenue on a net basis? Group of answer choicesA licensed hotel selling keno tickets to customers for 4.50 per ticket to the state gaming authority.A travel agent selling a cruise ticket to a customer, charging the customer 1 800 to the cruise liner company.A distributor receiving stock from its supplier on a sale-or-return basis. The sales price per unit is 60.A retailer selling goods to a customer for 8 GST to the government.
Solution
The option that is not an example of an agency arrangement where the selling entity would recognise revenue on a net basis is: "A distributor receiving stock from its supplier on a sale-or-return basis. The sales price per unit is 60."
In this case, the distributor is not acting as an agent but as a principal. The distributor takes possession of the goods and assumes the risks and rewards of ownership. The distributor recognizes revenue on a gross basis, i.e., the full sales price of $100 per unit, not the net amount after subtracting the cost per unit. The other examples involve entities acting as agents, selling goods or services on behalf of another party and recognizing revenue on a net basis, i.e., the amount they retain after remitting the agreed-upon amount to the principal.
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